Part B (6-10)

 

 

(6 marks) Jared Inc. is considering replacing its existing photocopier with a new one. The new system offers considerable operational savings. Information about the existing and new systems is as follows:

Â	Existing	New
Original cost	$12,000	$15,000
Annual operating expenses	$3,500	$2,500
Accumulated depreciation to date	$7,000	0
Current salvage value	$2,000	$15,000
Remaining life	5 years	5 years
Salvage value in 5 years	$0	$5,000
Annual depreciation expense	$1,000	$3,000

 

 

 

 

 

 

 

 

 

 

• Should Jared Inc. replace the existing photocopier with the new system?

 

(3 marks) Amity Plastic Manufacturing is a small plastic products manufacturer. The company uses machine-hours as the single, plant-wide predetermined cost driver rate to allocate manufacturing support costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for an order for Swift Food Processing Ltd.:

 

Amity Swift job

Direct materials $40,000 $1,000

Direct labor $10,000 $ 200

Manufacturing support costs $30,000

Machine-hours 100,000 900

 

What are the total estimated manufacturing costs for the Swift Food job?

 

(6 marks) Steve’s Salvage plans to salvage scrap metal and other materials from an old industrial site. The current owners of the site will sell the site to Steve’s for $100,000. Steve’s intends to extract scrap metal at the site for 24 months. It then will clean up the site, return the land to useable condition, and sell it to a developer. Projected costs are:

 

Â	Fixed	Variable
Initial outlay	Purchase land	$100,000	Â
Months 1-24	Metal extraction and processing	$5,000 per month	$110 per ton
Months 1-27	Rent on temporary buildings	$4,000 per month	Â
Â	Administration	$9,000 per month	Â
Months 25-27	Cleanup	$27,000 per month	Â
Â	Land restoration	$1,048,000 total	Â

 

• Assume Steve’s Salvage expects to salvage 40,000 tons of metal from the site, and can sell the metal for $190 per ton. If the company wants to earn a profit of $40 per ton, at what price must it sell the land at the end of the project to achieve its target profit per ton? (Ignore the time value of money.)

 

(6 marks) At the beginning of the year, Acme Corporation initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, the following data were collected for the current and preceding years:

 

Â	2012	2013	2014
Warranty and repair	50,000	40,000	25,000
Reliability engineering	$10,000	$15,000	$25,000
Product acceptance	10,000	9,000	7,000
Quality training	2,000	5,000	8,000
Packaging inspections	3,000	5,000	5,000
Re-inspection	65,000	48,000	29,000
Customer complaints	85,000	62,000	51,000
Rework	25,000	18,000	12,000

 

Sales revenue $1,250,000 $1,262,500 $1,350,000

 

• Prepare a trend report that shows total cost for each year for each cost of quality category. What conclusion(s) can be drawn from this?

 

 

 

(7 marks) Cancun Company is preparing a flexible budget to determine why operating profit fell below the budgeted amount. Complete the following table and list three possible reasons for the variance between budgeted and actual operating profit.

 

Â	Master Budget	Â	Flexible budget	Actual Results	  Variance
Sales volume (in units)	20,000	Â	18,500	18,500	Â
Sales Revenue	$1,050,000	Â	Â	$972,000	Â
Variable costs	500,000	Â	Â	477,000	Â
Contribution margin	550,000	Â	Â	495,000	Â
Capacity-related (fixed) costs	380,000	Â	Â	385,000	Â
Operating profit	$ 170,000	Â	Â	$110,000

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